Robin Hood Economics

By IBT Staff Reporter On 11/09/06 AT 3:27 PM

Robin Hood is one of the great heroes of folklore. He stood against tyranny and injustice by fighting against evil Prince John, who was blocking the return of good King Richard the Lionheart from captivity. Robin Hood fought for social justice and stood for the rights of the common man by stealing from the Prince and using the funds to support the downtrodden.

What if Robin Hood had run for President and been elected? What would he have done? Well, perhaps he might have governed like the President of Georgia, Mikheil Saakashvili. Remember the Rose Revolution that brought Saakashvili to power?He took a stand against the corrupt and unjust rulers and vowed to clean up the system.But now that he is President - what does his reform program look like?

These were the subjects of a very interesting conference held in Georgia at the end of October.The event was sponsored by the Cato Institute, the New Economic School of Georgia, the Heritage Foundation, the Center for International Private Enterprise, and a host of other think tanks from throughout the former Soviet bloc. We gathered for three days to analyze reform processes throughout the region and determine what could be learned and applied going forward.

So, what is the status of reform in Georgia?The country is not alien to fiscal populism, which, as we noted in an earlier column, is rampant in the region. Hungary is one of the unfortunate examples, as the former Finance Minister Lajos Bokros noted in his remarks. Ten years ago, Bokros put into place one of the region’s model reform programs, which paced Hungary for a number of years, until the fiscal populists came to power.

Going back to Georgia – it turns out that it looks a lot like a country governed by Robin Hood. And we are not just referring to ideals – we are also talking about the methods that are being used to achieve a particular goal.

Take one of the more recent examples.When Russia declared an embargo on wine from Georgia in March 2006, Georgian companies faced the need to re-evaluate their production and distribution strategies.But, as people told us in Tbilisi, they did not have to – for some, it was already decided what was to be done.President Saakashvili called leading businesspeople and told them that each company would have to buy a ton of grapes. What does a businessperson do with a ton of grapes that he/she had no intention of purchasing in the first place? What happens to his/her business prospects if they refuse?

Now, the story is not all bleak. The education reform program that is being carried out in Georgia is a model of thoughtful design. The Minister of Education and Science Alexander Lomaia spoke at the conference about the way in which he has engaged the various stakeholders in the very well-designed program. Students, faculty, businesspeople, and civil society are being engaged in an effort to build a modern education system through a complete overhaul of the current school structure.

On the other hand, the government was justifiably enraged over the failure of businesspeople to pay their taxes. In fact, last year, McDonalds paid as much tax as all of the other restaurants in Tbilisi combined. If you’ve ever been to Tbilisi, you know that the city is full of restaurants.The fact that McDonalds is paying more taxes than everyone else combined is certainly a problem!

There are several ways of dealing with tax evasion.However, the solution the government came up with may have been worse than the problem itself.

The government utilized the services of the financial police.They raided some of the restaurants during the lunch hour dressed in battle gear with automatic weapons and seized the cash registers. No warrants, no probable cause, and lacking concrete evidence. Such tactics of enforcing tax payments extend beyond the restaurant industry.

But, do these Robin Hood tactics work?According to the IMF, Georgia's overall tax receipts skyrocketed.So it must have been successful, right?

What we have learned over decades of work in more than a hundred countries, and what was discussed at length at the conference, is that one of the underpinnings of economic growth and prosperity is rule of law.Another one is economic freedom – the ability of economic agents to determine their own course of action and act within a market system.

Despite short-term successes, what Robin Hood really lacks is the underpinnings of long-term economic growth and social prosperity – fiscal responsibility, rule of law, and economic freedom.So, perhaps, he should read the Magna Carta, take a course from Adam Smith, and create a market-based democracy that works for everyone.